In a fixed level annuity, which risk is most applicable to retirees?

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Multiple Choice

In a fixed level annuity, which risk is most applicable to retirees?

Explanation:
A fixed level annuity pays the same nominal amount each period, so over time its purchasing power falls as prices rise. Inflation erodes what that fixed cash flow can buy, making inflation risk the most relevant for retirees relying on such an income. In contrast, longevity risk is mitigated because the payment continues for life, and investment or market risk affect assets backing variable returns rather than a guaranteed fixed payout—unless the contract includes inflation indexing, those payments won’t adjust to inflation.

A fixed level annuity pays the same nominal amount each period, so over time its purchasing power falls as prices rise. Inflation erodes what that fixed cash flow can buy, making inflation risk the most relevant for retirees relying on such an income. In contrast, longevity risk is mitigated because the payment continues for life, and investment or market risk affect assets backing variable returns rather than a guaranteed fixed payout—unless the contract includes inflation indexing, those payments won’t adjust to inflation.

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